How People Make or Lose Money Doing It:
By converting your money into a different currency, you are hoping that the new currency increases in value. When you convert back to your initial currency, ideally you will have more money than you started with.
Let's take a look at a simple example of how someone can make money from a forex transaction. Suppose you have $900 U.S. dollars and you exchange that for $1000 Canadian dollars. One week later, the CAD/USD exchange rate goes up from 0.90 to 1.0, so the Canadian dolar which you own has increased in value compared to the U.S. dollar. You could then exchange the $1000 CAD you have back into U.S. dollars and you would receive $1000 USD.
So you started with $900 USD, you now have $1000 USD, a profit of $100 USD.
Buying And Selling
|You buy 1,000 CAD at the
CAD/USD rate of 0.90
|A week later, the CAD/USD rises to 1.00 and you exchange your 1,000 CAD back into U.S. dollars